Why are averages misleading?

Since you have posted this in the Economics section, I will talk about this with regard to averages that have to do with economics. Averages can, in general, be misleading because they can be heavily influenced by outliers.

Let us take, for example, the statistic of Gross Domestic Product (GDP) which is widely used to measure how wealthy a country is. We often take the GDP per capita as a measure of how rich people in a country are. This is an average because it simply takes the total GDP and divides it by the population. But this can be very misleading. If there are some people who are very rich, their wealth can pull the overall average up to a significant degree. Instead of having about 50% of the people have incomes above the average, you might only have 40% with incomes above the average.

Alternatively, think about this in terms of the average price of a house on your block. Let’s say that four houses on your block are worth $200,000 each. But then the fifth house is worth $2 million. You would say that the typical house on your block is worth $200,000 because that is what most houses cost. However, the average would be $560,000 ($2.8 million / 5). This would totally overstate the value of the average house.